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Why Advanced Micro Devices Inc.'s Shares Plunged in October

What happened

Shares of Advanced Micro Devices(NASDAQ: AMD) soared in early October, rising as much as 12% in anticipation of the chip designer's third-quarter results. But that report turned out to be a disappointment, and AMD shares tumbled. All told, AMD's stock fell 13.8% last month, according to data from S&P Global Market Intelligence.

So what

AMD was destined to make a big move after this earnings report -- win or lose. Analysts raised their price targets ahead of the earnings release, noting strong results across the semiconductor industry and seeing no end to the cryptocurrency mining boom driving AMD's growth. At the same time, short-selling interest in the stock spiked to record levels, indicating a lot of skeptical investors willing to bet real money on AMD shares heading downward.

When the report finally arrived, AMD exceeded analyst targets across the board with adjusted earnings of $0.10 per share on sales of $1.64 billion. But the stock had been priced for absolute perfection, and AMD fell short of delivering on that. The next day, AMD shares closed nearly 14% lower.

Image source: AMD.

Now what

Don't cry for AMD shareholders. Even after October's sudden correction, the stock is up a market-stomping 70% over the last 52 weeks. These shares are still set up for some crazy volatility, trading at 34 times forward earnings estimates, and with 19% of the share base borrowed out by short-selling pessimists.

In November, I had to look outside and check for flying pigs or snowballs in Florida, as archrival Intel(NASDAQ: INTC) announced a new Core processor lineup featuring AMD's Radeon graphics technology. If these longtime adversaries are working together now, exactly how close might that partnership grow? Then again, Intel immediately followed up by pilfering AMD's top graphics guru, Raja Koduri, to create graphics solutions for it instead.

Those Floridian snowballs are melting again.

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